The European regulatory framework

Internal Energy Market

In February 2011, the European Council set an objective of integrating European energy markets by 2014, with the intention of creating a single market for electricity and gas, offering consumers full freedom of choice in an environment of fair and competitive prices, promoting renewables and ensuring and improving the security of supply. To this end, the Council mandated the Commission, the Agency for the Cooperation of Energy Regulators (ACER) and the European networks of transmission system operators for electricity and gas (ENTSO-E and ENTSO-G) to develop European Network Codes. These Codes are intended to define a set of common, harmonized rules to facilitate the management of cross-border issues with a systematic, coordinated approach. In 2013, the process of developing and approving numerous electricity network codes made full progress in the three Market, System Operation and Grid Connection macro-areas.

In parallel, in order to achieve the public-interest objectives mentioned above, the Member States may independently undertake actions that, if not appropriately designed and coordinated at the European level, could have a distortive impact on the operation of the internal energy market. Accordingly, with specific regard to electricity markets, in November 2013 the Commission published a package of nonbinding guidelines for Member States concerning public intervention involving: i) the adequacy of generation capacity; ii) support schemes for renewables and cooperation mechanisms; and iii) developing demand response.

Regulation on over-the-counter derivatives, central counterparties and trade data repositories (EMIR)

The main implementing measures for Regulation 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories, which had entered force on August 16 of the previous year, were published as Delegated Regulations of the European Commission on February 23, 2013.

The Regulation, commonly referred to as EMIR (European Market Infrastructure Regulation), introduces new rules governing centralized clearing and risk mitigation for OTC derivatives. Non-financial institutions are required to use centralized clearing and adopt certain risk mitigation techniques only in cases in which the positions that they and other non-financial companies in the same group have taken in OTC derivatives (only for those not used to hedge commercial risk) exceed the specified clearing thresholds. A number of the EMIR requirements came into effect starting from March 15, 2013. These include certain risk mitigation techniques for OTC derivatives that are not subject to centralized clearing obligations and a requirement for non-financial institutions to monitor their OTC derivatives positions to ensure that they do not exceed the clearing thresholds. Additional risk mitigation requirements took effect on September 15, 2013.

As from February 12, 2014, a daily reporting obligation for all derivatives transactions carried out by European companies took effect.

Emissions trading scheme

Since 2005, Enel Group installations in Europe have been required to participate in the EU ETS, a market-based system for reducing greenhouse gas emissions. Operators are expected to reduce their emissions by 21% by 2020 (compared with 2005 levels). On January 1, 2013 the third phase of implementation (2013-2020) began. This phase envisages a series of major changes introduced by Directive 2009/29/EC and subsequent regulations in order to improve the efficiency, transparency and effectiveness of the system.

The main change regards the method for allocating emissions allowances. The free allocation of allowances will gradually be replaced by an auction system. The power generation sector will be required to purchase 100% of its allowances through auctions as from January 2013. The proceeds of the auctions are managed by the Member States, who must however use at least 50% of the revenues to finance projects involving low carbon technologies (carbon capture and storage, renewable resources, etc.).

During 2013 the establishment of the Single European Union Registry was finalized, replacing the national registries in accounting for emissions allowances and increasing the security and transparency of the emissions allowance market. In November 2013, a new Registries Regulation was approved, defining the flexibility calculation rules (use of international credits for compliance purposes) for the third phase. With the exception of “new entrants”, no additional flexibility is envisaged for 2013-2020. However, it will be possible to use the residual flexibility from phase 2 until 2020.

Also in November last year, the monetization of the final tranche of 100 million EUAs of the New Entrant Reserve (NER 300) by the European Investment Bank (EIB) was begun. The proceeds will be used to finance pilot projects in the innovative renewable resources field and in carbon capture and storage (CCS) technologies.

As regards the inclusion of international flights under the EU ETS in 2012, following numerous suits filed by a number of non-European airlines, the compliance obligation under the EU ETS was limited to European air space until a global solution for reducing emissions in the aviation sector can be reached.

Finally, in December 2013, the Decision amending the ETS Directive to formally authorize the European Commission to change the calendar of auctions for phase 3 was approved, postponing (back-loading) the sale of 900 million allowances in order to reduce the excess short-term supply on the carbon market.

Industrial Emissions Directive

As part of the process of implementing the Industrial Emissions Directive (Directive 2010/75/EU), the European Commission is working to update the reference document on best available techniques for large combustion plants (BREF LCP), which includes the emissions levels associated with the best available technologies to be considered in the permitting process. In the 2nd Half of 2013, a consultation was conducted on the first draft presented by the Commission. The completion of the review process scheduled for the end of 2014 could be delayed until the early months of 2015.

Regulation on the submission and publication of data in electricity markets

Following the comitology process, on June 15, 2013, the Regulation on the submission and publication of data in electricity markets (Commission Regulation 543/2013/EU) was published. The regulation determines the minimum set of data on generation, transportation, consumption and balancing that must be made available to electricity market participants for subsequent central collection and publication. The European Network of Transmission System Operators for Electricity (ENTSO-E) will be responsible for establishing a central information transparency platform, which will aggregate and publish the data received from TSOs and other data providers.

The 2030 climate and energy package

On January 22, 2014, the European Commission published the 2030 climate and energy policy framework, composed of the following documents:

  • a communication on the European policy for climate and energy through 2030, envisaging:
    • a binding EU-level target to reduce greenhouse gas emissions by 40% compared with 1990, with a larger reduction for the ETS sector (-43% compared with 2005);
    • a binding EU-level target to achieve 27% of final energy consumption from renewables (not translatable into national targets);
    • no energy efficiency target;
    • a new governance framework based on national plans for competitive, secure and sustainable energy to ensure greater harmonization of Member State policies;
  • proposed legislation to introduce an automatic adjustment mechanism for the supply of allowances in the European Emissions Trading Scheme (EU ETS);
  • a communication on energy prices to compare the components of final prices across the Member States and types of customer;
  • a communication on exploration and production of nonconventional hydrocarbons (in particular, shale gas).